From News, page 6, issue no. 343, November 26th, 2007
Translated by Zuo Maohong
Original article: [Chinese]

International venture capital firms have taken aim at China’s burgeoning health care chain industry. But with China’s health care reform entering a key phase, the government has exhibited caution that the reform’s original intent to benefit the public will be lost. With mounting fervor on the part of foreign venture capital firms to invest in the industry, the Health Department has introduced new speed bumps to entry. Now, firms must register with the Health Department and gain its approval six months to a year before opening a new health care-related branch.

China’s health care chain market will be worth 27 billion dollars by 2010. At present, public and private health care institutions make up 90 and 10 percent of the market respectively. In Europe and the US, the two split the market evenly.

Making Deals

"We are negotiating with several ventures that have showed interest in us," says Yu Rong, board chairman of Meinian Healthcare Corporation in Shanghai. Since opening its first location last year, the company now operates out of three in Shanghai, and is opening another 15 to 20 in other cities next year.

On November 15th, Qiming US Venture Capital announced its investment in a well-known domestic health care website, guokang.com. The announcement didn’t mention the amount invested, but insiders estimate that no less than 10 million US dollars was involved, as it is said to be the biggest investment of venture capital in the domestic health care industry to date.

Dedicated to health service for both individuals and enterprises, the website now has established a nation-wide network and begun its value-added health services for some of the commercial banks and insurance firms.

Zhao Ning, executive director of the Shanghai branch of Carlyle Group, revealed to the EO that his company has recently signed an investment project that involves “helping hospitals with some special treatment services”. And on August 6th, Jiamei Dental Medical Management Group, the country's largest privately-owned chain of dental clinics, enjoyed a 10 million dollar capital injection from private equity firms Martin Currie and SIG Asia.

Government is Cautious

Chen anticipates China will surpass Japan and have a medical service and products market second only to the US by 2020. “So we feel it necessary to seize the chance right now,” he says.

Chen has every reason to be positive. Economically speaking, demand for medical care expands rapidly along with increases in family income, which is soaring in China. Changes in the Chinese lifestyle has meant that chronic diseases such as hypertension and diabetes are attacking more and more Chinese today. And as the population ages, the number of patients will also naturally grow. This combined with the fact that only ten percent of the market is privately owned means that there is much room for growth. Meanwhile, ongoing medical care reforms are offering more opportunities to foreign capital.

At present, foreign investment in health care has mainly been yuan-valued, and focused on private medical care service institutions that run opthalmologic, dental, medical cosmetology, and health inspection clinics. Most of the invested chains are located in large-to-middle-sized cities, provincial capitals, and coastal areas.

Yu voices his optimism over the outlook of the health inspection industry, but adds that there will be more severe competition. He points out that policies and regulations have yet to be introduced to this burgeoning industry, and current application policies that have been applied to the expansion of hospitals in the past are obstacles to   development in the industry.

According to a draft of Administrative Regulations on Health Inspection Institutions that was published on October 26 for public comment, such institutions are not allowed to operate until they register in local public health departments and acquire qualification certificates.

One industry insider says that the draft indicates that the government has become strict about foreign firms’ access to the industry, and despite the upper limit of foreign ownership being relaxed to 70%, every opening of a new chain has to go through examination and approval procedures of the State Ministry of Health, which are usually rigorous and take at least half a year.

According to this insider, the Ministry’s prudence stems from hoping to use foreign capital to bolster funds in public health care on the one hand, and fearing the potential shock that capital inflow will bring to the market on the other. If skilled professionals in public institutions are lured into foreign-invested firms by high salaries, they say it will be harder to stick to the reform’s principle of serving public interests first.

Despite this, investors like Yu are optimistic. “The health care service industry is a special one, and certainly, stricter standards should be required of health care chains than to, say, hotels,”  adding that he’s totally ready for the challenges and has begun preparing.